TREASURIES-Yields edge higher in line with Europe, after Fed's Dudley

NEW YORK, Sept 8 (Reuters) - U.S. long-dated Treasury yields rose from 10-month lows on Friday, in line with gains in Europe, after Reuters reported that European Central Bank policymakers at Thursday’s meeting discussed reducing stimulus for the euro zone.

U.S. two-year yields also rose from four-month lows.

New York Fed President William Dudley’s less-hawkish comments overnight also helped push U.S. yields higher, analysts said. Dudley, a voting member of the Federal Reserve, did not repeat an assertion three weeks ago that he expects to raise rates once more this year, and he called the persistent shortfall in price increases surprising.

Yet he reinforced the U.S. central bank’s general expectation that an inflation rebound is around the corner, allowing it to continue tightening monetary policy before too long.

ECB officials discussed four options in paring back their monetary easing policy, Reuters reported, such as cutting asset purchases to 40 billion euros or 20 billion euros a month, with extension options including 6 months or 9 months, two sources with direct knowledge of the discussion said.

As a result, bond yields in Europe rose, with the peripheral markets - Italy, Spain, Portugal - getting the brunt of the selling. Germany’s benchmark 10-year bond yield, for instance, rose 2 basis points to 0.32 percent, having fallen to its lowest level since late June in early trade at 0.286 percent.

Jim Vogel, interest rates strategist at FTN Financial in Memphis, Tennessee, said Treasuries were moving in tandem with Europe in the absence of U.S. economic data.

“The ECB story’s first impact was with peripheral yields so that Spain, Portugal and Italy’s yields widened quite quickly on the idea that the ECB will buy fewer bonds than people had been thinking,” said Vogel.